It depends! Each transaction has its own unique tax treatment and may be taxed at various tax rates. Generally, gains on stock sales and real estate transactions are subject to the preferential capital gain rates, while certain aspects of a business sale may trigger ordinary gain. On the flip side, capital losses are limited to $3,000 while ordinary losses can offset other forms of income, such as wage income. Each type of sale should be properly analyzed and planned to ensure you avoid pitfalls and minimize your tax liability.

As each entity structure has its advantages and downsides, business owners need to assess many aspects before changing an entity structure. A change in entity structure is often driven by tax savings strategies, liability protection, the makeup of the ownership group and the type of product/service offered by the company. A common structure change is a conversion from a C Corporation to an S Corporation. This change will result in avoiding the double taxation of the C Corporation, but the business would be locked into a five-year recognition period where it would be subject to Built-in Gains Tax (BIG tax) on the sale of appreciated assets during that period.

Every year can bring different strategies as business owners deal with this annual tradition. The approach to year-end planning can vary by new laws in play as well as potential law changes in the future. Couple that with the profitably level of the entity and go from there. In many cases, business owners may want to consider whether they need to incur capital expenditures in the near future. If they expect a profitable year, they may want to make the purchase prior the end of the year in order to claim the depreciation deduction. In the same vein, other options include the timing of owner and employee bonuses or retirement plan contributions. A good year-end strategy may look not necessarily to reduce taxes to zero but instead targets income to take full advantage of the lower tax brackets.

The common adage goes as follows: sellers want to sell their company stock to get capital gain treatment while purchasers want to buy assets to claim depreciation deductions. However, there are other considerations to take into account such as whether there are contracts and contingencies tied to the entity, the entity type of the business, assets held by the seller outside of the entity that is tied to the business (i.e. commercial real estate), and the goals of both parties. Each business sale is unique and our team has the expertise to come alongside to you to properly structure the transaction.

This is going to be unique to the type and size of your business. Financing can take on many forms under the umbrellas of either debt or equity financing. If your business requires a significant asset investment, equipment leasing may be a good route to take as it does not require a significant capital investment and frees up cash for operations and working capital (such as inventory). Bank loans are popular and come in the form of short, mid, or long-term financing and offer the flexibility of early pay-off. On the other side, equity financing brings an influx of funding that doesn’t have to be repaid and does not have an interest cost. This type of financing is given in exchange for shared ownership in the company, the cost of which future profits (and losses) are shared with investors.

That depends on many factors including how much the exiting parties’ interest is worth, the payout terms and the circumstances of the exit. In many cases a buy-sell agreement will dictate the amount and structure of the transaction. If your business does not have a buy-sell in place it should!

Small business owners often perceive their company is worth more than it really is, since they pour their blood, sweat, and tears into building their business. It is understandable owners would put a level of emotion into valuing their operation. In reality, value is based on the company’s future ability to generate cash flow and profits. Valuation methods can range from informal calculations based on industry “rules of thumb” to engaging a Certified Valuation Analyst (CVA), and values can vary depending on whether an owner wants to transfer the business to a family member or current employee, sell to an outside third party, or liquidate. We have CVA’s on our team who are ready to assist you in valuing your business.

In some cases, this can vary by industry, as tax law provides incentives to spur growth in targeted sectors. There are common deductions that impact a wide range of industries and businesses, such as Section 179 expensing, bonus depreciation, the new qualified business income deduction, and research credits, to name a few. The critical component to this strategy is timing! Where possible, a business should thoughtfully plan the receipt of income or payment of tax deductible expense pay the overall lowest tax rate. Our advice is to look a longer-term view of your tax picture to ensure you are paying the lowest effective tax rate possible. Tax laws at the federal and state level are constantly changing and staying informed is the key.

It is no secret Minnesota and specifically the metro area is one of the highest tax rate and regulatory locales in the country. If your business has no strings and could maintain operations and growth from anywhere, by all means, look to the sunny beaches of Florida or the vast open country of South Dakota to get out from under the Minnesota tax burden. Our team has worked with clients to navigate residency issues as they have transitioned out of the state. With that said, it may not be wise to make tax issues in the state the number one priority in deciding the location of your business as Minnesota does have many favorable business attributes, foremost of all a highly skilled workforce, an attribute of which, combined with Minnesota’s strong education system and high quality of life ranking, greatly contribute to driving the success of your business. Many prominent companies call Minnesota their home, which demonstrates the overall success they have experienced by being headquartered in the “land of 10,000 lakes.”